The Comparative Informational Efficiency of Stock Splits and Options

Abstract

This study investigates whether the split ratio (even or odd), as well as whether options are traded on a stock or not, result in abnormal returns on the announcement day of the stock split, and the days surrounding the announcement day. The findings provide evidence of abnormal returns for all stocks in the sample. Moreover, there is evidence of abnormal returns on the announcement day for both odd and even split ratios, but the abnormal return is slightly greater for the even split ratios. For optioned stocks, the findings suggest that there are abnormal returns, but they are less than the abnormal returns for nonoptioned stocks. The results support the assertion that options, and derivatives in general, lead to more efficiency in the financial market.